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IR35 Update – How businesses can prepare

Updated – 05/11/2020

Earlier this year the government announced that the planned changes to the way IR35 works in the private sector, which were due to take affect from 6 April 2020, would be delayed for one year. The legislation will now take effect from April 2021, and in this blog post, we will discuss how business can prepare.

What is changing?

From 6 April 2021, private sector businesses will become responsible for determining the employment status of contractors, regardless of whether they supply their services through a personal service company directly to the end-user or via an agency. The new rules will effectively see a shift in current responsibility on status determination, from the contractor to the end-user client. The changes will not apply to small businesses that engage contractors through an intermediary.

You are a client if you receive services from a worker. The off-payroll working rules make sure workers pay broadly the same tax and National Insurance contributions as an employee if they:

  • provide services to you through their own intermediary – most commonly a limited company that they control
  • would have been an employee if they were providing their services directly to you, the client

The intermediary will normally be the worker’s own personal service company, but could also be a partnership, a managed service company or an individual.

What about the self-employed

The IR35 rules only apply to individuals who are working like employees under the current employment status tests, and do not apply to the self-employed.

Individuals who operate their own business structure and do not work in the same way as an employee, for example they have their own business premises, employ other workers or work for a wide range of clients, continue to be outside of the scope of the off-payroll working rules.

In these circumstances, they will continue to be responsible for paying tax through Corporation Tax Self-Assessment (CTSA) and Income Tax Self-Assessment (ITSA).

How businesses can prepare

It will now be up to the businesses receiving a contractors services to determine whether the off payroll working rule (IR35) apply. Here are some tips on how your business can prepare.

  • Speak to your contractors to determine whether the off-payroll rules apply to their role.
  • Determine whether the IR35 rules apply to any contracts that will extend beyond April 2021.
  • Plan what procedures you will have in place post April 2021 to ensure future contractors at your organisation are compliant with the IR35 rules. This could be organising who in the organisation will determine the employment status of contractors and how payments will be made to those within the off-payroll rules.
  • If many of your workers fall within the scope of IR35, review the cost of employing them as well as the additional payroll burden and consider whether it is economically viable to have as many contractors working under the rules.

The link below sets out the legal test to determine a contractor’s status

It is essential that businesses seek their own legal advice about this specific legal test and criteria for determining the status of the contractors they are working with, (or intend to work with) given that they are procuring the services that the contractor will carry out, and are therefore the operational decision makers as to the nature and scope of the services. TCP are not able to give advice on this, the onus is on the client.

How TCP Can Help

If you engage with contract workers and feel that, some may fall ‘inside’ of IR35 legislation, then TCP can help. As a UK employment agency, TCP specialize in employing skilled contractors on behalf of clients, ensuring that the correct taxes and NI are being paid whilst also ensuring they are paid accurately and on time every month. Get in contact with TCP today to see how we could help your contract workforce. Call our UK office on: 0044 208 5 800800 or fill in our contact us form here and a member of our sales team will get back to you as soon as possible.

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